December 2007

Hello Ken,

I am confused with the identification of the primary activities in the value chain of this company:

Question:
Local neighbourhood shops are finding it increasingly difficult to compete with supermarkets. However, three years ago, the Perfect Shopper franchise group was launched that allowed these neighbourhood shops to join the group and achieve cost savings on tinned and packaged goods, particularly groceries. Perfect Shopper purchases branded goods in bulk from established food suppliers and stores them in large purpose-built warehouses, each designed to serve a geographical region. When Perfect Shopper was established it decided that deliveries to these warehouses should be made by the food suppliers or by haulage contractors working on behalf of these suppliers. Perfect Shopper places orders with these suppliers and the supplier arranges the delivery to the warehouse. These arrangements are still in place. Perfect Shopper has no branded goods of its own.

Facilities are available in each warehouse to re-package goods into smaller units, more suitable for the requirements of the neighbourhood shop. These smaller units, typically containing 50–100 tins or packs, are usually small trays, sealed with strong transparent polythene. Perfect Shopper delivers these to its neighbourhood shops using specialist haulage contractors local to the regional warehouse. Perfect Shopper has negotiated significant discounts with suppliers, part of which it passes on to its franchisees. A recent survey in a national grocery magazine showed that franchisees saved an average of 10% on the prices they would have paid if they had purchased the products directly from the manufacturer or from an intermediary – such as cash and carry wholesalers.

As well as offering savings due to bulk buying, Perfect Shopper also provides, as part of its franchise:
(i) Personalised promotional material. This usually covers specific promotions and is distributed locally, either using specialist leaflet distributors or loosely inserted into local free papers or magazines.

(ii) Specialised signage for the shops to suggest the image of a national chain. The signs include the Perfect Shopper slogan ‘the nation’s local’.

(iii) Specialist in-store display units for certain goods, again branded with the Perfect Shopper logo.

Perfect Shopper does not provide all of the goods required by a neighbourhood shop. Consequently, it is not an exclusive franchise. Franchisees agree to purchase specific products through Perfect Shopper, but other goods, such as vegetables, fruit, stationery and newspapers they source from elsewhere. Deliveries are made every two weeks to franchisees using a standing order for products agreed between the franchisee and their Perfect Shopper sales representative at a meeting they hold every three months. Variations to this order can be made by telephone, but only if the order is increased. Downward variations are not allowed. Franchisees cannot reduce their standing order requirements until the next meeting with their representative.

a) Describe the primary activities of the value chain.

Answer:
Inbound logistics: Handling and storing bulk orders delivered by suppliers and stored on large pallets in regional warehouses. All inbound logistics currently undertaken by the food suppliers or by contractors appointed by these suppliers.

Operations: Splitting bulk pallets into smaller packages, packing, sealing and storing these packages.

Outbound logistics: Delivery to neighbourhood shops using locally contracted distribution companies.

Marketing & Sales: Specially commissioned signs and personalised sales literature.
Promotions and special offers.

Service: Specialist in-store display units for certain goods, three monthly meeting between franchisee and representative.

Question1:
I do not understand how “three monthly meeting between franchisee and representative” could be classified under “service”. Shouldn’t it have been under “outbound logistics” instead?

Whereas in BPP revision kit, the answer says that that should be under “Marketing and sales” because it is because of this ordering process that persuades the neighborhood shops to enter into a contract with Perfect Shopper.

I am so terribly confused right now..

Hoping for your help on this, thank you!